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business Thursday 12 May 2022

How to avoid 'rug pulls,' the latest cryptocurrency scam

By ANDY ROSEN of Nerd- regular manner are making
Wallet these rug pulls."
A new type of scam has KNOW THE CODE
emerged in the hype-filled The fate of any investment
world of cryptocurrency: in cryptocurrency or block-
the "rug pull." chain projects rests on the
The scam, which gets its integrity of the project's
name from the expression computer code. You may
"pulling the rug out," in- not be a computer pro-
volves a developer attract- grammer, but you should
ing investors to a new cryp- at least understand how a
tocurrency project, then product works before in-
pulling out before the proj- vesting in it.
ect is built, leaving investors One way to evaluate a
with a worthless currency. potential investment with-
It's part of a long history of out going under the hood
investment schemes. yourself is to see if it's been
"This isn't a crypto-only phe- audited by a professional
nomenon. This is a people organization that is re-
phenomenon. Crypto is spected in the industry.
just the latest way to do Projects that have gotten
it," says Adam Blumberg, This April 3, 2013, file photo shows bitcoin tokens in Sandy, Utah. good marks from auditors
a Houston-based certi- Associated Press will often promote the re-
fied financial planner who sults themselves.
specializes in digital assets. have also been involved in means there may be vul- appreciation, the highest RESEARCH THE PEOPLE
But cryptocurrencies have rug pulls. nerabilities that make it rewards may come from Some of the biggest red
particular risks due to loose Investors can protect them- possible for their organizers new projects where the risk flags in the cryptocurrency
regulations for fundraising selves by choosing estab- to siphon value away from is also higher. These are of- world come down to hu-
and their emphasis on de- lished cryptocurrency proj- investors and keep it for ten listed on "decentralized man factors.
centralization. ects, making sure the code themselves. exchanges," which don't While it's not unheard of for
Cryptocurrency projects of any new project has If you're struggling to break rely on any centralized au- people to use pseudonyms
often use "smart contracts," been reviewed and verify- through the hype, one way thority that would prevent in cryptocurrency, reputa-
agreements that are gov- ing the developers' identi- to find established projects unproven projects from ble developers often have
erned by computer soft- ties. is to look at centralized ex- joining. websites and references
ware, not the legal system. PICK ESTABLISHED PROD- changes such as Binance, Rex Hygate, founder of De- that can establish their cre-
This setup can be a benefit UCTS Coinbase and FTX. While FiSafety, a company that dentials.
when it reduces transac- Rug pulls are most com- the presence of a cryp- reviews projects in the field, But even if you do your
tion costs, but it also leaves mon with new projects that tocurrency on a large ex- says scammers can prey on homework, there's no
little recourse if things don't haven't gotten the same change is by no means a the fear of missing out that's guarantee of success. For
work out. scrutiny as more estab- guarantee of its quality or generated by rare but true example, the founder of
Rug pulls have been par- lished cryptocurrencies. investment potential, these stories of mind-blowing re- Rugdoc.io, a service that
ticularly common in decen- Bitcoin has its risks, but businesses often will review turns. reviews new projects, says
tralized finance, or DeFi, countless people world- assets before listing them "It is seductive. she wound up getting
projects that aim to disrupt wide have used it and re- for sale. People have made a lot scammed herself on an NFT
services such as banking viewed its inner workings, The trade-off of investing of money. That is a fact," that was supposed to be a
and insurance. NFTs, or which are readily available primarily in more estab- Hygate says. "The hope ticket for an event.
non-fungible tokens, that online. lished assets: While crypto- is real, albeit small, (and) Diversification is as impor-
provide digital ownership Newer projects don't have currency, in general, has therefore criminal organi- tant in cryptocurrency as
of art and other content, such a track record, which seen periods of rapid price zations in an organized and anywhere else in finance.q